Good morning, everyone, and welcome to Morgan Stanley's Global Healthcare Conference. I'm Sean Lammon, Head of U.S. Midcap Biotech Equity Research here at the firm. Before we begin, for important disclosures, please see Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to a Morgan Stanley sales representative. For this session, we welcome from Exelixis the President and CEO, Dr. Michael Morrissey. Welcome and thank you for your time today, Michael. Great to see you again.
Yeah, good to be here for sure.
Maybe we can begin by you setting the scene a little bit or providing some introductory insights.
Yeah, for sure. Again, thanks for the invite. Always great to be here. This is the meeting that kicks off the fall for the industry, so always a pleasure to be part of it. Before I begin, let me just say, oh, coffee's on the way. Fantastic.
Super. Thanks.
Yeah, it's a little early West Coast time here, so I need to caffeinate. I'll be making forward-looking statements, so please see our SEC filings for a description of the risks that we face in our business. Exelixis, commercial-stage biotech company focused in oncology. I think we're one of the, you know, one of the few with strong revenue growth due to our lead product, CABOMETYX. Cabozantinib is its generic name. It's a leading VEGFR targeting TKI that has additional important targets that get around both primary tumor growth and resistance. Been on the market now for about 10-plus years. I've lost track, seven, eight different indications, and most notably, indications in neuroendocrine tumors that came online at the end of Q1 this year that we're really excited about. Strong team, about 1,000 people on board. We have a singular goal of improving standard of care for patients with cancer.
The lens that we view the world, if you will, is through the Cabo experience, where, by some great science, extraordinarily efficient clinical development, and then just superb commercialization, we've been able to move the needle for patients and therefore build value in the company for shareholders. I think that's the way we look at it. In today's world, you know, me too drugs with me too data don't go very far. You really have to differentiate coming into the situation to be able to move the needle for patients. That's what we've done with Cabo, and our view is then to do this again across a pipeline and portfolio that we think can really build value in the years to come.
Wonderful. Thank you, Mike. Just before we get into the detail around your company, I've got some macro questions here that we're asking all our companies. The first one is, you know, with China's rising biotech innovation, how are you thinking about Exelixis' competitive position here and will it influence your R&D and business development?
Yeah, it's a great topic, great question. Personally, I've been working with people in China since, I think, the mid-1990s. My other job, I've been with Exelixis for 25 years now. Before that, I was at a company called Brolex, part of the Schering AG world. We had strong collaboration in China. Moving to Exelixis then, we did a similar type of thing back in the early 2000s. We were able to network with a variety of different, at that point in time, it was Chinese academics. In the ensuing couple of decades, obviously, there has been a huge shift in resource allocation and infrastructure within China. It's a very important opportunity for the global biopharma ecosystem to be able to engage with, potentially work with, and use that opportunity to really move the needle for patients.
We have a number of molecules that are currently in our portfolio that either were originated in China or are part of a Chinese kind of operation. Excited about those assets. Obviously, it's all about the data all the time and the opportunity to move forward. The depth of resource there, the potential for innovation, and the ability to then globalize that, I think it's a tremendous opportunity that we and everybody else is looking at very carefully. Time will tell if we do more there or not, but we're certainly looking at that very closely. We've got people who are there a lot and, you know, spur of the ground for innovation.
Thank you, Mike. On to AI. Are you currently leveraging AI? How do you think about AI's disruptive potential?
Yeah, that's an important question. From the standpoint of, do you want to be on the bleeding edge or the leading edge? I certainly am aware of a lot of companies that have gone all in on AI only to either pull back a little bit or question the impact on their business. It's always about separating hype from reality and where you use new technologies, how you invest, how you might not want to overinvest so early in the process. We use AI across the board whenever it can help us, help us improve our efficiency, help us improve our performance. On the innovative side, we're still learning a lot there. We do a lot early in the R&D process and then at different points in time to increase how we can move from an efficiency point of view.
The big aha moments, you plug in some questions and you get out a drug. We're not quite there yet. I don't think anybody is. I think a certain level of skepticism in terms of what you can do and how you can use it is appropriate. Look, we're all in on technology. We're an innovative company. We have to ask the right question and then make our investments according to the ROI that we expect to see in the short term and the long term. We're certainly in this game.
Wonderful, Mike. On the regulatory side, what's been the most impactful for Exelixis? FDAs? Have they been?
Yeah, it's funny. We talked about dinner. I had dinner with Sean's boss's bosses last night as part of the Morgan Stanley kind of experience. Nobody was talking about efficacy, new molecules, M&A. It was all regulatory, right? There are lots of moving pieces there. There always have been. Certainly, the intensity of that now is more than normal. For us, there's kind of government chargebacks outside of the tariffs, outside of MFN. There are lots of moving pieces that are theoretically issues for the industry. The current existing chargebacks, especially 340B chargebacks, is a real thing for us. It's a real thing for the industry. That's almost as big as, in terms of totality, as big as Medicare Part D right now in terms of money going from manufacturers to hospitals as opposed from manufacturers back to the government. Yeah, lots to do. I hope Congress can engage there.
It's certainly a complicated calculus relative to all the different moving pieces economically. We are in a business of innovating for patients. Every dollar that goes away from R&D and goes somewhere else actually hurts patients. Not maybe tomorrow, but five years from now, 10 years from now, 20 years from now. I think the powers that be governmentally need to ask the question, what are we doing today? What are the intended, maybe more importantly, unintended consequences for my kids, your kids, our grandkids in terms of where the science is going to go in the future? That covers the complete gambit of therapeutic areas that we as an industry work on. It's something that we have to be really, really careful about going forward.
For sure, for sure. I'm more to Exelixis specific. You just started with CABOMETYX. You're a couple of quarters into the NET launch. Maybe if you could just frame out the opportunity that you see in NET. How's the launch gone versus expectation? I think you're at 4% of the business in the last quarter. I guess what's factored in, if anything, to fiscal 2025 guidance for CABOMETYX and NET?
Yeah, for sure. Net, neuroendocrine tumors, it's a relatively underserved, understudied population of patients. Last approved drug in the Net space was in 2015, 2016. The area where we compete in now with CABOMETYX for both pancreatic and extrapancreatic tumors is in the oral therapy space. That is basically standard of care has been really revolving around everolimus, which is generic, denitinib, which is generic, and then cap 10, which is generic. You've got relatively old drugs, I think everolimus was approved in 2014 or 2015, that are part of the toolbox that prescribers can use in how these patients are treated. Net is a relatively unique tumor type in that it's a very indolent disease. Patients can live with that disease for literally decades. Slow-growing tumors over time, especially when those tumors end up in important organs, can cause a problem, which is where chemotherapy comes into play.
We're very excited about being part of that. If you look at the oral therapy market, the way we do it is by looking at the number of patients, drug-treated, drug-available patients per year, and then you use contemporaneous pricing as well as kind of duration from our CABINET study where we showed very compelling progression-free survival in both PNET and EPNET. That oral segment is about a $1 billion market basket, if you will, right? We seek to capture as much of that as we can over the next few years. The rate-limiting step in that process, all these patients have active tumors that are all progressing and sanctioning that in reform. It's really having them come off their existing therapy because they're progressing and then move on to have the opportunity to then be treated with CABOMETYX. Excited about that.
As you mentioned, I guess, as I mentioned, we got approved at the end of Q1. Second quarter was the first full quarter of launch. We have, within Exelixis, a very deep, very experienced commercial organization. We've got a GU sales force that's focused on kidney cancer that's been mainly kind of the base business, as well as then a smaller but very effective GI sales force that covers thyroid cancer, liver cancer, and now Net. First quarter, we talked about that on the Q2 call back in August. It's about 4% of our business. 4% of $520 million or so, that's about a $20 million revenue gain, if you will, which was a great start to that quarter. Again, first quarter of launch, it's mostly new patient starts. You don't have a lot of time for refills since we're only three months in the quarter.
I think doing my math, the theoretical max was around $40 million. We did about $20 million, so $20 million plus. That wasn't a bad place to start in terms of that first quarter. Now the question is just do we continue to grow market share? That was within the first quarter about 35% based upon market research. Also, the question was asked, best-in-class therapy, get a list, and CABOMETYX was best-in-class as well in that oral segment. A great foundational start relative to where you'd like to be within weeks of launching. We just need to continue to do the hard work of working with physicians, educating them, and then as patients progress and have an opportunity to be put on CABOMETYX, then make that happen.
Sure. Thanks, Mike. I guess sort of still on Cabo, you've got long-term sales cards out there. I think almost to $3 billion by the end of the decade, right? You know how important the plan is net of that, and just to gauge your confidence of getting to that near $3 billion. I think the census still has a significant haircut on that number.
It does. Yeah. You got to fix that. Yeah. By my math, you know, we need to grow. We put that guidance out, that kind of long-range view of 2024. We have to grow, you know, with a CAGR of 10%, 11% over that timeframe to hit that, which, you know, I think is very doable. NET's a big part of that, as well as the base business, which has been growing at a very rapid clip. I think if you look at Q2, we grew, you know, 18%, 19% year over year relative to the second quarter of 2024. The base business is growing at a pretty good clip. The NET opportunity, obviously, is going to be a big contributor of that. I would say from a commercial point of view, we have a very hungry sales team.
I think Commercial understands that the progress they make then fuels what's happening in the pipeline, our ability to, you know, develop Zanza, our ability to build a pipeline. Aspirationally, you know, we've been very successful at developing our first franchise molecule in Cabozantinib. You want to do that again and again and again. It's not that complicated, right? Success in this business is really defined by the number of franchise opportunities you can move forward simultaneously. Certainly our goal in terms of helping more patients, but also then building value for shareholders, is to be able to develop one franchise after another in rapid succession. That's the whole goal behind what we're doing in R&D with Zanza and the whole pipeline.
Awesome. I have a bunch of questions on Zanza and some of the readouts that may be coming up, some of the events. For those that are less familiar with the Exelixis story, what is Zanza? How does it compare to Cabo? What's your vision for the program with Zanza?
Zanza is a third-generation VEGFR targeting TKI. We've certainly exhaustively characterized Cabo in the preclinical and clinical settings. The whole goal behind the genesis of Cabo's kind of story was asking some fundamental questions around what drives tumor growth, what drives vascular growth, what are the targets involved with that, and then being able to not only attack those directly, but also ask the question biologically, what drives resistance to those important targets. We tied that all together into a single molecule, which is Cabozantinib. Over time, we understand its impact on the immune system. Cabo really attacks every important cell type, a lot of important pathways in tumor growth, vascular growth, and the impact of the immune system on driving its antitumor activity, both on the humoral side and the adaptive side. It's a packaged molecule that we like a lot.
Part of the inhibition profile was one that we didn't want to mess around with too much. Multitargeted inhibitor, you're never 100% sure what targets and the affinity, if you will, for its inhibition actually drives what activity. To keep that intact, the one downside from Cabo that we've heard in the past is that its long half-life hampers the ability to dose adjust. Most molecules in terms of chronic oncology therapy will need to be dose adjusted on an individual patient per patient. Doing that with a four or five-day half-life is more challenging than if they would Zanza, which has a one-day half-life.
The insight between going from Cabo to Zanza was to keep the profile the same and then build in metabolic liability from a very, I think, intelligent fashion to make the half-life a little bit shorter so that it would be better, easier to dose adjust, which is what we did. All the phase one data that we published to date supports that. Very, very simple story. We've got two, now two ongoing, actually three ongoing pivotal trials and then a couple more to start in our collaboration with Merck this year. The goal is to look in both the white space from Cabo, learning from Cabo, as well as other overlapping opportunities like in RCC to be able to build this next franchise molecule that will take us well into the 2030s.
Wonderful. More recently, we saw the MCSH deleteria TRI-DATA and you announced positive top-line results and stat OS improvement versus Rego in the ITT population. The trial is proceeding to plan for analysis for the other dual OS primary endpoint, patients without liver mets, right? Can you answer the biological differences between the two patient populations and how your study design has evolved since the first iteration?
Yeah, the biological differences between a patient without liver mets and non-liver met patients and liver met patients isn't really that well characterized. I think there's been some very important empirical data sets generated around patients with non-liver mets. Patients without liver mets actually, first, they certainly have a better overall prognosis, as you would expect. If your liver is not compromised, then you're probably going to live longer. Number two, those patients, again, with all the caveats, the single arm, non-randomized data, tend to respond better to checkpoint therapy. That's somewhat controversial, but that's the hypothesis that's been put out there by a number of investigators and kind of huge real-world databases highlighting that that's the possibility. We designed 303 to look at the overall population, the ITT population. Non-liver met population is about a third, 30% or so of the overall incidence.
Most patients will, over time, progress from having clean livers, no liver mets, to heavy liver mets. Tracking that closely is obviously very important too. We designed the study, Zanza plus Atezolizumab, Atezol versus Regorafenib. I'll point out that to date there have been four additional third-line plus studies done using checkpoints that have failed. There were two PD1/LAG3 combinations that failed. There was a PD1 TKI trial that failed. There was a PDL1 MEK inhibitor trial that failed, all contemporaneous. It's an area that has been, I think, viewed as interesting and certainly unmet, but has been a kind of a tough place to operate in terms of actually moving the needle, right? All the other trials, all the other compounds that have actually been effective here, I thought they've all gone against placebo in some shape and form. We're asking a very fundamentally different question.
Can we go against a standard of care in Regorafenib and actually improve overall survival in the ITT population, which we have, and that was the top-line data, as well as in the two subpopulations, non-liver mets and liver mets? The non-liver mets are still ongoing.
Got you. How do your OS expectations get out of patients with liver mets versus non-liver mets versus the blended ITT population?
Let's punt on that question until the data comes out a little bit, hopefully later this year.
Yes, please.
Expectations are expectations, now they're the reality, so let's just talk about that data when it comes out.
Okay.
Okay?
Okay. Looking at the available MCLC therapies and what's considered standard of care, how do you think about Rego versus Lonsurf in terms of the competitive bar in this patient population?
Yeah. We'll have a lot more to say about that when the data comes out from 303. The standard of care, if you look historically at the data, looks pretty similar, right? I'll remind everybody that over time, standard of care normally improves in terms of physicians and investigators learning how to use these drugs better and better, different dosing regimens, etc. We think we have a very competitive profile with Zanza and Atezol. It also potentially speaks to CRC has been historically a cold tumor, hasn't been effective outside of the MSI population. To be able to have a therapy that actually impacts that could be really useful here too.
Sure. Next question I get a lot of inbound on. You indicated that you plan to file for approval in this indication as quickly as possible. When might we be able to hear an update?
Yeah, when we get that done.
Okay.
You mentioned going to early lines of CLC with a focus on the post-adjuvant setting based on the 303 data. Can you talk about how you're thinking about the patient opportunity and market?
Yeah, it's really interesting. We talked about the idea of this kind of two-dimensional way of looking at franchises. CABOMETYX is, again, CABOMETYX is one where we have multiple indications within the same compound. Going into indications like colorectal cancer, neuroendocrine tumors, where we can use multiple approaches, multiple different compounds, we think is very attractive. I really like the diversity of approaches here because that's ultimately how you can build value the fastest by going after both. CRC, again, what standard of care post-surgery is adjuvant chemotherapy. There's actually pretty good efficacy with that long-term survival follow-up and disease-free survival follow-up for a large set of patients. Unfortunately, a significant number, in the U.S., 10,000 plus or minus patients every year are actually poor prognosis for disease-free survival. They progress faster. That adjuvant chemotherapy, it works to a certain degree, but doesn't really stick.
You've got patients who are progressing radiographically relatively quickly. If you could identify those patients and have them be on a maintenance, and we think a molecule like Zanza, now having proven survival in a later line setting, could be an ideal choice. If you have the right overall safety profile, you have the right dose, you have the right opportunity to get in there with a kind of a maintenance therapy post-adjuvant in this higher risk population where the trade-off in terms of safety versus potential efficacy is in the right direction, it could be a really attractive way to go. We're excited about that. That should come online late this year, early next year. We also have some important new molecules moving forward from our pipeline into CRC.
XB371, which is a tissue factor targeting ADC coupled with a TCAN-based warhead, is actually designed perfectly for working in CRC. You can imagine either single agent work or combination work with Zanza to be able to further reinforce this foundation around the CRC franchise going forward. Pretty exciting for sure.
Wonderful. Thank you, Mike. Moving over to 304 and non-treated cell CMC, I think you updated the timeline, pushed it out to March 26th. How would you frame the way investors should think about that change?
I'm fully enrolled. We're just closing events. Stay tuned.
Okay.
Can't get much more simple than that, right?
Sure. Exelixis 3311, in advance of NETs begun, is this complete overlap with the current CABOMETYX approval? How are you thinking about potential cannibalization?
Yeah, our Zanza, let me take a step back. Our Zanza approach here is to look at, again, look at the landscape of indications for Zanza versus Cabo, and keep the early indications where there's minimal overlap going first. Then those with potential overlap happening later in terms of trial enrollment, readout to potential approval. In the case of the RCC, the clear cell RCC trials we're doing with Merck, 311 and Net, those would probably come online if successful clinically in hitting kind of maximal escape velocity from a revenue point of view post the LOE for Cabo in the early 2030s, right? That timing is somewhat calculated based upon the Cabo lifecycle, right? Not cannibalizing Cabo sales with Zanza.
That being said, Cabo in the CABINET study was studied against placebo in later line patients and eventually covered a lot of different kinds of patients because it will go long and standard of care was changing. With the 311 study, Zanza is being compared head-to-head against everolimus. All the market research that we've done, KOLs that we've talked to have said that if something could beat standard of care, they would use that over a molecule like Cabo that just beat placebo. We're playing this game, if you will, of raising the bar, raising expectations for the kind of data we have to be able to generate to then improve standard of care for patients.
I think if we can do that effectively, whether we do it in LIMO, whether we do it in Net, that will really give us an opportunity to then be very successful commercially when those molecules hit the market.
Sure. Still laying out the landscape for Zanza. You announced the discontinuation in HID and neuroendocrine tumors (NETs). If you could frame out sort of the reasons why, I think you said emerging competition and there are bigger opportunities elsewhere for Zanza. Maybe give us a bit more meat on the bone on that.
Yeah, sure. I'll cover the same things we talked about on earnings back in August. Look, what we do well and we've done well historically is prioritize in how we make investments. We've committed to the street to keep our R&D spending kind of capped at about $1 billion a year. Still, we have to make choices. We have to make choices based upon the ROI from a clinical point of view and a commercial point of view and the competition. The full framework of how you make investments in a very careful, thoughtful manner. We designed the stellar 305 study to be a phase two-three design because we wanted to be able to take an interim look at that data. We did that. We didn't think we had an overly competitive profile.
At the same time, head and neck versus this post-adjuvant kind of maintenance TRC where there's large population, high possibility for long duration of therapy, which, as you know, is a real driver. If you can stack patients, compounding is real. It works, right? As well as in meningioma, which is a form of a relatively indolent form of brain cancer that is completely underserved, chemotherapeutically, uses basically surgery and radiation before that kind of runs out of time. The patient runs out of time. We have some very, very compelling data there with Cabo in terms of seeing not only tumor shrinkage radiographically, but symptomatic relief in terms of people being able to walk again or being able to see again with the tumors back, kind of behind the eye. Pretty compelling data there.
When you look at those opportunities from a commercial point of view, they're probably two to three-fold higher than what we were thinking about with head and neck. For us, it was kind of a no-brainer, reprioritize based upon data. Doesn't mean we're not going to go back into head and neck, but certainly from a priority point of view, it's a lower priority. Pick the winners and execute extremely well and build value.
Sure.
It's a constant reshuffling of priorities. We've done that with CABOMETYX effectively and then with the company effectively over the years. That'll just continue. That's just status quo for us, right?
Of course. You mentioned earlier on CABOMETYX that you've got the peak revenue going out there before the end of the decade, but your consensus is somewhat shy there. That is even more true for Zanza. You've got, I think it's a $5 billion revenue forecast in 2034, if I remember correctly. Consensus is probably about half that number. With feedback from investors, what are you hearing? What are the proving points that you think are going to get a more optimistic view from the street?
I think P-values help with that, right? There's, you know, I think we've put that guidance out, guidance kind of aspirational view of what success looks like that far out with the idea. We did that back in the third quarter of 2024 after the Anda and the Williams came out, which was, again, very favorable for us. We needed to put a stake in the ground and kind of refocus everybody away from Anda and Anda to pipeline Zanza growth, right? I think the whole idea was to take people like you and your colleagues on the sell side and certainly the buy side world and just say, hey, we're more than just the Cabo end. We had a similar situation back in 2019 where 9ER read out.
We probably had a thousand meetings in 2019 and every meeting was, are you going to be able to get survival in 9ER? Again, it's Cabo and Nevo versus are you going to be able to see survival? How do you compete with AxiPam? It'd be Nevo. You know, how are you going to be able to grow revenues? The reality is between 2019 and 2024, 2025, we've tripled revenues, right, with that data. In some ways, you have to frame for investors where you're going, what you think is possible, what you're working towards, and then you have to execute flawlessly and rigorously to make sure that you're checking off all the boxes to get to those numbers going forward. We've hit all of our milestones in the past. We're very excited about the opportunity going forward.
I think pipeline of franchise molecules, Cabo, Zanza, and then the next couple, and we think we can have outside scope in terms of the impact for patients and for shareholders. That's what we're doing every single day.
Awesome, Mike. On the four early stage programs in phase one, is the one that gets you excited the most?
Yeah, you know, I always use the favorite child analogy, which today both of my kids are doing great, so I like them. We're not here to build a big pipeline. Those kinds of pipeline stacking numbers have never impressed me. It's a kind of a false facade. We have a big pipeline and a deep pipeline of early stage assets because we're looking to find the winner. We're looking to find the needle in the haystack, the next Cabo that can move the needle for patients. You've got to be able to run enough trials, if you will, for the winners to stand up and say, hey, I'm a good molecule. I'm different than blah, blah, blah. Invest more in. Certainly, XBLNL, our most advanced bi-specific, looks really interesting.
Hopefully over the next block of time, we'll get to a go/no-go there in terms of do we go into full development or do we stop it. XL309, our USP1 inhibitor, is in an area where the competition has just devolved for kind of bad PK, bad safety. We're standing alone there in terms of both monotherapy in combination with the PARPs. That could be really interesting. Got more work to do there, actually, but it's looking pretty interesting. We talked about 371, which we're really excited about. Our first bi-specific is XB628, which targets PDL1 and NKGA2, which is an NK cell target. To be able to bring in T cells and NK cells into tumors, we think is pretty attractive too. Lots of moving pieces there. Again, it's not a matter of just having them, but we want to find the winners and have those molecules in advance.
Because a molecule advancing in the late phase development is one step closer than to having a franchise employee. That's the goal.
Sure. Wonderful. I don't get a lot of inbound on this, but just last thing maybe is, what I find fascinating is that the balance sheet the company has and the cash flow that you're generating. I don't think it gets a lot of attention, but I think it should. Just sort of your thoughts around OpEx going forward.
Yeah, so we have, since Chris joined back in 2015, really made it a priority to run the business like a business. Most biotechs are just cash kind of infernos in terms of, you know, cash in, cash spent, financings and spending. We have been very disciplined about how we've done that. Certainly, the Cabo franchise has given an opportunity to clean up our balance sheet, kind of our historical growth, and then generate free cash. We've done about $1.8 billion in buybacks since the middle of 2023. That's really, I think, appropriate. Yeah, we're continued. We've been profitable for, gosh, I don't know how many quarters in a row now.
That gives us optionality to do the appropriate level of thoughtful and practical capital allocation between BD investing in the internal pipeline, which is again capped at about $1 billion a year, and then any kind of buybacks that we can do to give back money to shareholders. SG&A has been relatively flat. Obviously, you know, we get approved in CRC, then we'll have to incrementally grow the commercial business. That's a big important part of the process in terms of how we go. Certainly, as we build out Zanza and the GI, we want to be market leaders in both GI and GU. That requires a little bit more work in SG&A. Yeah, we'll see.
We're fresh out of time, but very wonderful to talk to you, Mike.
You bet. Thanks again.
Thanks for attending. I really appreciate it.
You bet. All right. Awesome. Thank you.
Thank you, Mike.